Covid-19 and the Paycheck Protection Program (PPP)

Small businesses contain half of the American work force. Now during the COVID-19 outbreak, owners are having difficulty surviving and paying employees and reopening businesses. The CARES act, the Paycheck protection program(PPP) has given $454 billion as loans to small businesses in the first round. However, the federal government’s decision on PPP was rash, bank lenders are confused with the program, and borrowers have difficulty to find lenders. Furthermore, the purpose of the program is still unclear.

According to Louie Lujan , Government Relations Director at CIMA law Group, the Treasury Department released details of PPP only hours before its opening, lenders did not have enough time to understand. The Treasury Department Secretary Steven Mnuchin claimed borrowers could receive loans within a day. This claim was absurd to lenders.

Lujan said that Loans in the first round had run out in 13 days, now we are in the process of the second round. However, the prediction of the second round is running out quickly like the first round and borrowers still need more loans. Economists predicted that at least $1 trillion loans can satisfy all borrowers.

Not only is the start of the PPP program is confusing and chaotic, it also seems unreasonable to many small businesses owners. There is one real case(case 1) that can reflect this problem. An owner has two different types of restaurant, each restaurant needs several workers. She successfully got one loan for one of her restaurants. However, the situation was embarrassing, she hesitated to take money. Under the PPP program policy, the loans can be fully forgiven only if workers continually paid from the loans for eight weeks. Of course, she, like other owners, wants the loans to be fully forgiven, then she needs to employ workers for eight weeks even if the restaurant is closed. Not surprisingly, we can see her restaurant can not be benefited from the loans. However, even workers can not be benefited. She contacted her previous employees, but they did not want to come back working for her, since these workers can get more money by staying at home compared with working for her. They are now getting unemployment benefits $600 a week and additional federal benefits included stimulus bills. She really wants this money to be used for retooling her space to earn money, but her plan is not permissible according to the PPP program’s purpose.

Louie Lujan indicates that some small companies indeed benefited from loans from the PPP program. In one case(case 2), the owner has a translation business with two employees in total, himself and one of his family members. He said before getting the loan, he feared he would soon run out of money to pay himself and the family member. We can see that his worry fits the purpose of the PPP program, which is letting small companies have money to pay employees in order to decrease layoffs. He successfully got less than $20,000 loans from the First National Bank. After that, two employees continually worked 8 weeks to let the loans be fully forgiven. In addition, the owner has surplus money remaining. According to the policy, the remaining money must be used for the company, and he said he planned to hire a company to design a website for him. From this case, we can see the unfairness toward more complex and larger scale small companies like the case 1 on the first policy implications paragraph. Case 2’s employees are all from family members, they can easily work 8 hours and change their wages if necessary to get $20,000 for free. No matter what, $20,000 free money can benefit them for sure. But Case 1’s owner can not do that, it does not depend on her, but on her previous employees. It is tricky that smaller scale companies have priority to get loans and benefits instead of larger scale companies, but the Treasury Department Secretary Mnuchin said the program aims to help the smallest of small businesses.

According to CIMA Law Group, the program is in its second round. The program put $310 billion in the second round. Within this $310 billion, 2.2 million pieces small businesses loans worth $175 billion had given to borrowers. There are few policies regarding to be eligible appling second round loans. 1. The Treasury Department Secretary claimed that the average size of loans should be under $79,000. 2. Three days after the beginning of the second round, money ran out quickly. So, the Small Business Administration(SBA), which operates the PPP program, claimed that lenders can only lend money to financial institutions, which are having less than $1 billion assets, and lenders can put applications on the SBA system only during 4:00pm — midnight.

Louie Lujan, Director of Government Relations at CIMA Law Group says that even the simplest loan needs several days to receive because of paperwork and going over fine print with borrowers. Since lenders, or banks have to operate the program, they have imposed their own rules instead of following the claim, which borrowers receive loans within one day. Bank of America blocked many borrowers from making its own rules; JPMorgan Chase’s borrowers found an endless long line in front of them; Wells Fargo got additional restriction from the Federal Reserve, so it told most applicants that it can not help them; Citibank waited days to begin taking applications from most of its business.

Even though the program helped small companies and layoff workers, it is questioned if they really prioritize small businesses who need loans, after the program gave loans to wealthy schools and deep-pocketed companies.

Sources

Cowley, Stacy, et al. “Small-Business Loan Program, Chaotic From Start, Gets 2nd Round.” The New York Times, The New York Times, 26 Apr. 2020, www.nytimes.com/2020/04/26/business/ppp-small-business-loans.html.

Cole, Devan, and Kevin Bohn. “$175 Billion in Small Business Loans given out in the Second Round of the Paycheck Protection Program.” CNN, Cable News Network, 3 May 2020, www.cnn.com/2020/05/03/politics/small-business-ppp-loans-second-round/index.html.

Stewart, Emily. “States and Cities Are ‘Falling off a Cliff’ as the Economic Crisis Sets In.” Vox, Vox, 16 Apr. 2020, www.vox.com/policy-and-politics/2020/4/16/21223398/state-city-budgets-coronavirus-economic-crisis-ppp-cares-act.